Fueling economic fears

Published 10:34 pm, Friday, March 1, 2013

Fairfield Police Officer Jim Perez fills up his car at the Stop & Shop gas station at 705 Villa Avenue in Fairfield on Thursday, February 28, 2013. Regular gas is selling for $3.99 per gallon atthe station.

Fairfield Police Officer Jim Perez fills up his car at the Stop & Shop gas station at 705 Villa Avenue in Fairfield on Thursday, February 28, 2013. Regular gas is selling for $3.99 per gallon atthe station.

"I spend $50 in gas, and that's just the average cost for an average day," Russeau, owner of Eastwood Painting of Bridgeport, said as he filled up his work van on the way to a job in Wilton. He's been in the business for 30 years, and he said higher fuel prices are hitting at a time when he and other businesses are finally seeing more market demand.

For many in the construction trades, the recession really began in 2007 and has been slowly recovering. But now they and other businesses are seeing profit margins squeezed by higher energy prices. And experts believe the trend of high prices, despite a recent pullback in the oil market, will continue to plague the economy.

After continuously climbing for weeks, oil prices reversed Friday, but not for a positive reason. Congress' failure to avert sequestration, a package of federal spending cuts, preceded a drop of $1.37 in oil prices, which settled at $90.68 on the New York Mercantile Exchange Friday. Locally, the average price for a gallon of gasoline in Connecticut was $3.982, 21.1 cents more than the national average, according to AAA's Daily Fuel Gauge Report. The Bridgeport metro market saw its average at $4.065 per gallon. GasBuddy.com, a website devoted to tracking prices at stations, found a range of $3.87 to $4.09 in the Danbury area and $3.94 to $4.69 in Stamford Friday.

Rocky Vitale, who stopped at a Fairfield gasoline station Friday for a coffee break, said he's concerned about high prices, even though he has a company car.

"Every employee has to be mindful of prices and know the right place to fill up," he said.

That's because when his employer's costs rise, it could lead to consequences for him and his family in the form of smaller raises or benefit reductions.

It's not just gasoline prices, Maidment added. The increase to Social Security taxes is also hitting consumers and increased health care costs related to Obamacare are hitting employers.

"That's not going to do the economy any good," he said. "People have less money to spend. They will buy less. The economy will slow down."

Employers will not bump pay and it could reduce their ability to hire.

"There's only so much money," Maidment said.

Donald Klepper-Smith, New Haven-based chief economist of DataCore Partners, said even though prices are dipping, he expects in the long-run, they will remain high and that's bad news for the Northeast.

Klepper-Smith said a driver in the high cost of energy, and Maidment agreed, is Federal Reserve policies. He said those policies have devalued the dollar and inflated the price of oil, priced in U.S. dollars. The overall impact is about 20 to 25 percent, he said.

"This is one of the major threats to the New England economy," Klepper-Smith said.

That's because energy costs are lower in the South and when combined with lower wage rates, it makes that section of the country more attractive for business growth.

"The higher the gas prices and oil prices go, we become less competitive," Klepper-Smith said.

There is a capacity issue in the gasoline supply system, he said, because U.S. companies haven't built refineries in years, and that's contributing to the problem.

A key provision of the Dodd Frank Act to limit speculative positions in oil markets has not been enforced and that's allowed this run up in prices, Fox said, but he's hopeful regulation of those positions will provide relief as early as July.

"We're at a retail price now we should be nowhere near," he said. "We should be under $2."

That's where gasoline prices were when Barack Obama was elected for his first term.

In the meantime, he said gasoline stations are being hurt by these prices because it's reducing their volume. Compared to four years ago, volume is down 20 to 25 percent, Fox said, and station owners are afraid to raise prices for fear of losing more business.

Independent dealers are facing competition from players in the market like Stop &Shop, which offers discounts to frequent customers of its grocery business.

Ultimately, Vitale and Russeau there's not much in the short term people can do because you have to drive to run errands and get to work.